RETIREMENT SERIES
TO MOVE OR NOT TO MOVE, THAT IS A RETIREE’S BIG QUESTION
Home truths for retirees
The house, once kept with such pride and joy, strikes a tragic landmark on the quiet suburban street, with remnants of decades-old paint all but flaking off weatherbeaten timber walls.
Its garden, not so many years back producing a bounty of food to feed the family, has long since vanished into the undergrowth, weeds greedily reclaiming the once quarteracre slice of paradise.
Add in an elderly homeowner and it’s likely that despite being asset rich, they’re strapped for cash. It’s known as the crumbling landlord syndrome.
“It’s sort of a slow creep of poverty, if you like,” explains the Commission for Financial Capability’s national manager (retirement villages) Troy Churton. “Even though they might be sitting on a gold mine, they’re landlocked landlords.”
With more than two out of three people aged 65 and over owning property in New Zealand, it’s a dilemma many senior householders face.
Retirees with their own freehold properties have a myriad of options about where and how to live out their golden years, whereas the 30% who don’t have property face an increasingly limited choice.
“I guess what we’d say is look at all your options,” suggests national social connection advisor Louise Rees from the country’s senior citizens advocate charity Age Concern.
“If you’re getting to a point where either you anticipate living at home is going to be difficult or that’s already happening, take some time to consider all your options.”
She says looking at potential financial, health and social issues looming on the horizon can often be very useful in arriving at the best solution.
“Let’s face it, this is a big decision. If your own home is becoming difficult to manage, what exactly is causing the problem? Is your bathroom difficult to negotiate? Is it the gardening? Is it more basic things like needing help with personal care? Or is it isolation?”
Louise says helpful toolkits such as the My Home, My Choices, provided by the Office of Senior Citizens, outlines options and practical advice.
Given the prospect of severing links with communities and friends, Louise also advises that shifting house isn’t necessarily the only option when age starts to impact living, especially if the problem is remedied by an extra pair of hands helping at home.
“If people have health issues that are making it difficult to manage, we recommend that they go and get in touch with their GP for a needs assessment. They can be assessed to see whether they’re eligible for any funded support, which might be a help with housework tasks or personal care.
“Have an assessment, talk to your health professional and make sure you‘re not either moving when you could have the help you need to stay where you are, or paying for care that could be funded.”
The Commission for Financial Capability suggests that understanding spending patterns through the different stages of retirement will help to make savvy decisions about reallocating any equity and also using savings to generate enough income to top up a person’s superannuation.
Troy says people staying in their house need to work out if they are able to afford having a lifestyle outside the fixed costs of being a homeowner, or live with seeing the building crumble around them if they don’t have enough money for maintenance.
“And look, there are plenty of people who live that way because they just want to stay in their castle. They live on the breadline almost and they might be sitting on a $2 million property in Auckland, but they just want that sense of their own home and they won’t leave,” he continues.
“I’ve met a number of elderly folk who say, ‘Well, we’d rather stay in our home, live on the breadline and leave the decision to move elsewhere until we’re in our mid 80s. By that time, our current $1.5 million home might be worth $3 million and we’ll have more potential money to use to pay for our care.’
“Other people say, ‘I’m going to move to a village now. I’m going to free myself of stress. Yes, I’m going to forgo capital gain, however all the other things a village lifestyle offers are more important than grinding away in my crumbling home!’”
But Troy says whether people choose to stay in the family home or move depends on how they want to reallocate their finances as they go through the different stages of retirement.
The commission, which has guides for retirement planning on its website, has determined there are three stages of retirement with the greatest call on finances occurring typically at the start and end of retirement.
“If people understand spending patterns in retirement, they can be a lot more practical about how they want to reallocate their equity and savings,” he explains.
“That then can guide people as to whether they think staying in their home is a reality or if getting a reverse equity mortgage is something they’re comfortable with while they stay in that home, or whether they downsize by selling up that home and moving to a smaller one or a retirement village to free up equity to invest.”
He says reverse equity mortgages are increasingly popular but don’t necessarily suit all people.
“Homeowners can choose whether they want regular instalments of money or occasional big lumps of money. They are effectively eating into the capital but they get to stay in their home.”
Troy says it’s best to get legal advice before going with this option and warns there are risks involved, especially if there’s a major downturn in property values.
“Anecdotally, what I see is superannuitants who are homeowners and don’t want to free up everything to go renting or into a village or don’t want reverse equity are more inclined to downsize so they still look like homeowners but it may be in a smaller unit or home or a different location for that matter where they can free up that extra equity to invest to generate more income.
“If I was having this discussion with somebody who is living in a $6 million house, and who is going to sell up and maybe buy a $2 million house in Tauranga and have $4 million invested, they may have a passive income for the rest of their days and still have a lot to leave their kids.
“But if I’m having this conversation with somebody in the back blocks of Levin where a home might be worth $300,000 and they end up buying a $150,000 unit, they’ve freed up $150,000 to reinvest to get a small passive income stream and they might be more than happy to live their life out that way. There’s no one size that fits all option.”
Rethinking retirement living
Home may be where the heart is but experts warn declining rates of ownership may force future generations of pensioners to look at different types of accommodation in their twilight years.
Troy says new trends are emerging as more people arrive at retirement without the ability to fall back on equity generated by owning property.
With housing affordability over the past three decades increasingly becoming beyond the reach of many, and those arriving at 65 still lumbered with high mortgages, the retired living landscape paints a starkly different picture for coming generations.
“Most fundamentally, in 20 or 30 years’ time, there won’t be nearly as many people who are drawing equity from being homeowners. So there will be fewer homeowners and more people are going to rely on savings,” he explains.
With half of all people over the age of 15 owning or partly owning the home they lived in during 2013 − a figure down three percent from seven years earlier − and the number of seniors expected to more than double in the next 20 years,
Troy warns there is a need to examine different ways to house our senior population.
The current housing affordability conundrum means rental accommodation, alternative home ownership models, community housing, shared ownership arrangements and long-term leasehold type arrangements are all